REGION: San Diego-based Pat & Oscar's files for bankruptcy protection

San Diego-based
Pat & Oscar's,
which in recent months has been tightening its belt by closing restaurants, has filed for bankruptcy protection, according to a statement from the chain Monday.

The chain's popular hangouts in Temecula on Rancho California Road and in Carlsbad, on El Camino Real, were closed Friday, according to the chain.

"For a number of months the management of Pat & Oscar's has worked very hard to streamline operations and return the company to profitability. However, we discovered that, while these efforts were important and necessary, they were not going to be sufficient to save our parent company," the company said.

"I would assume they were banking on a stronger economy, and it hasn't quite materialized," said Nima Samadi, restaurant analyst with IBISWorld Inc. in Santa Monica. "In shutting down some locations, they probably didn't have the cash flow to support them," Samadi said. "They probably were expecting more from their franchisees in terms of revenue, and weren't hitting their growth and expansion goals."

The parent of Pat & Oscar’s, FFPE LLC, said in its Sept. 21 filing that it had assets of $331.459.97 and liabilities of $4,102,416.70.

On Monday morning, Oscar Sarkisian of San Marcos, who founded the original restaurant in San Diego 20 years ago this month, stopped by the Temecula outlet to look things over. He vowed to reopen it ---- by himself if he has to. The chain is named after him and his wife, Pat.

Pam Herrscher of Temecula walked up to the front door and cupped her hand over her mouth in disbelief as Sarkisian told her the restaurant had closed.

"I'm shocked, just shocked," said Herrscher, who had stopped to pick up lunch for her daughter. "I love it, absolutely love it. It's one of my kids' favorite restaurants."

Herrscher said she eats at Pat & Oscar's once every week or two, and her favorite dish was the barbecue chicken salad.

A month ago, the chain closed its restaurant along Palomar Airport Road in Carlsbad, and had quietly closed three others in the last six months.

In an interview nearly two weeks ago, John Kaufman, president and chief executive officer of Pat & Oscar's, hinted of moves to come when he announced that the chain was undergoing a "strategic realignment" in its Southern California footprint as it readied for an expansion with a new prototype.

Kaufman said that the prototype would be rolled out in coming months, and would be about 3,500 square feet in size and put the kitchen front-and-center in the food preparation process.

A month ago, there were 14 restaurants in the chain. With the bankruptcy filing last week, three corporate-owned stores were closed, including locations in Temecula, Carlsbad and El Cajon. The El Cajon restaurant was situated in the Parkway Plaza. "We are hoping that we will be an opportunity to reopen the locations under the Pat & Oscar's brand name, but we don't have any concrete details at this time," the company said.

The prototype is about half the size of the franchisee stores still open. The stores have a characteristic 30-foot-long counter filled with registers ---- which will be shrunk considerably in the prototypes, Kaufman said previously.

The chain, which includes 11 franchisee-owned stores, has signed letters of intent to open two prototype stores in Orange and Los Angeles counties. The franchisee group includes five owners of the 11 franchises left in the chain, according to Kaufman in the Sept. 14 interview.

The franchisee group has apparently not yet made a decision on who will lead the company while it reorganizes under a Chapter 7 filing made in bankruptcy court. Nor have plans been announced as to whether the closed stores in Temecula, Carlsbad and El Cajon will reopen.

"Our franchisee group is currently working together to ensure the longevity of the Pat & Oscar's brand at all remaining Pat & Oscar locations," the company said in the Monday statement. "We encourage our guests to stay tuned for information regarding potential new franchisee locations in Southern California featuring a new prototype with an enhanced menu and updated look and feel, while still providing great family meal choices."

Kaufman and his business partner, Tim Foley, both of whom joined the chain's management team in April 2008, led a management buyout of the company later that year. At the time, Pat & Oscar's had 19 restaurants.

The only remaining restaurant in North San Diego County is along Las Posas Road in San Marcos.

One of the stores closed in the last month was the focus of an outbreak of E. coli poisoning in 2003. At least 11 people in San Diego County and three in Orange County were hospitalized for symptoms of E. coli poisoning, which is caused by bacteria-infected foods. The illnesses were traced to lettuce used in salads at three Pat & Oscar's restaurants: one on Palomar Airport Road in Carlsbad, one in Mission Valley and a third in Orange County, according to the San Diego County Health and Human Services Agency.

With the sour economy hurting sales, the company has tried to expand beyond its traditional business. In an effort to drum up more revenue in the last year, Pat & Oscar's began selling its breadsticks, made by La Jolla Baking Co., at 13 Costco stores in the region, Kaufman said.

The restaurant realignment is key to future growth, he said.

"We want to start expanding back up north (in Los Angeles), hit Orange County and the Inland Empire, and then fill in some in the San Diego area," he said in this month's interview. He declined to describe the timeline of growth or how many stores might be opened over the next few years.

"It's been a difficult road, no question," said Kaufman about the chain's efforts to gain traction in the limp economy. "We've had challenges, for sure."